Some bad news about that German engine of growth

Think of the Bundesbank as a very expensive mechanic –- one that’s been trained to diagnose the ills of the most finely-tuned engines. Well, he’s wiping his hands on his expensive BMW overalls, grabbing a clipboard and delivering some unwelcome news.

It seems that Europe’s largest economy, which many have held up as the ultimate engine of growth for the deeply troubled euro zone, is losing power. The Bundesbank on Friday sharply cut its forecasts for 2013 growth in gross domestic product to a measly 0.5% (on a calendar-adjusted basis) from its previous estimate of 1.6%.

Exports are the culprit. The Bundesbank now expects net exports to swing from contributing one percentage point to GDP growth in 2012 to providing a drag of 0.4 percentage point in 2013, while domestic demand is expected to strengthen.

The Bundesbank wants you to remain calm. While some sluggishness may be in store, there’s no need for an expensive overhaul. The slowdown will be temporary, concentrated in the first half of the year after a likely contraction in the current quarter. Growth is expected to return to a 1.9% annual pace in 2014. German GDP grew by 3.1% in 2011.

Moreover, German workers are unlikely to take a big hit, with working hours serving once again as a “cyclical buffer,” the central bank noted.

Indeed, one of the highly touted features of the German economy is its “kurzarbeit,” or short working hours, program, which was credited with damping the impact of the post-financial crisis downturn on the country’s labor market. Buba, as the central bank is known, sees unemployment edging up to 7.2% in 2013 before slipping back to 7% in 2014.

So the German economy isn’t about to land in the ditch, but don’t expect it to have the horsepower to pull the rest of the region to safety, either.

“All in all, today\’s Buba\’s projections are consistent with the downward revision of [euro-zone] GDP presented by the ECB yesterday. Germany is not expected to fall in an outright recession but certainly it will stop to be the main engine [euro-zone] growth,” said Annalisa Piazza, economist at brokerage Newedge in London.

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